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1 Introduction

The present study is entitled as “Investors’ Attitude towards Stock Market:

A study with Reference to Madurai City”. The Indian stock market is one of the

oldest and largest in the world. The rapid industrialisation in the country since

independence has given vitality to the stock market. Stock market helps to

channelize household savings to the corporate sector which in turn facilitates the

development of industrial and service sectors. An equity share is a part of the

ownership capital of the company eligible to share many benefits from the

company. When one invests in shares, he keeps it for some time depending upon

the stock price. When the rates of shares increase, he sells the securities to another

party. Investment is generally done by people in order to meet their future needs

and also to protect them from the impact of inflation. Investment in shares will

fetch better returns compared to any other form of investment. Whenever the

inflation rate is high, the stock market has given higher rates of return to the

investors. Share trading helps the corporate to raise additional funds for expansion

by creating demand for the securities. The liquidity that an exchange provides

gives the investors the ability to quick and easy selling of securities. This is an

attractive feature of the stock market investment.

Investors can select the suitable avenue according to their desired level of

risk, return and liquidity. Investment in securities of capital market can be made

through primary or secondary market. In the primary market corporate entities

offer new securities directly to the investors and mobilize the funds needed for

their development. The secondary market provides continuous liquidity to the

securities by trading them in the stock exchanges. The investors can buy or sell the
existing securities at the prevailing market prices in the stock exchange through


Investment is the deployment of fund with the aim of achieving additional

income or growth in capital value. Investment is an investing activity that attracts

all people irrespective of their occupation, education and social status. An

understating of the core concepts and a thorough analysis of the options can help

investors to create a portfolio that maximize returns while minimizing risk

exposure. The general concern and focus of the financial advisors and government

is to see that every individual needs to invest and earn returns on their idle

resources and generate a specified sum of money for a specific goal in life and

make a provision for an uncertain future. The financial investment is the

obligation of money that is expected to yield some gain over a period of time. If a

person has more funds than his current needs he can deposit the surplus money in

the bank to earn a fixed rate of interest or buy gold or purchase shares or invest in

any other form of financial instruments. In other words, investment is allocating of

monetary resources to assets that are expected to yield some gain or positive return

over a period of time. The assets may range from safe investment to risky


The nature of investment in the financial sense differs from its use in the

economic sense. To the economists, investment means net addition to the

economy’s capital stock which consists of goods and services that are used in the

production of other goods and services. In this context, the term investment,

1 J. Michael Sammanasu, “An Inquiry into the Investors' Preferences in Capital Market
Investment with special Reference to Tiruchirappalli – District”, Unpublished Thesis,
Bharathidasan University, April 2010


therefore, implies the formation of new and productive capital in the form of new

construction, new products and durable equipments. Inventories and human capital

are included in the economists’ definition of investment. Traditionally investment

is distinguished from speculation in three ways. Speculation brings in its wake

risk, capital gain and period of time. The word risk refers to the possibility of

incurring a loss in a financial transaction. In investing in shares, if purchases of

securities are preceded by proper investigation, analysis and review they will

receive a stable return over a period of time. Such an act is called investment.

In India, the investors have the dual advantages of free enterprises and

government control. Freedom and growth are ensured from the competitive forces

of private enterprise. On the other hand, being a fixed economy, government

control exerts discipline and curtails some elements of freedom. A public sector

left free to operate hope to achieve the benefits derived from both socialistic and

capitalist forms of government. But such an independent public sector brings in

disadvantages also. In India, the political climate is conducive to investment as

government controls lends stability to the capital markets. The success of every

investment decision has become increasingly important in recent times. Making

sound investment decisions require both knowledge and skill. Skill is needed to

evaluate the risk and return associated with and investment decision. Knowledge is

required to analyse the complex investment alternatives available in the economic

environment. The main aim of investors is to get capital appreciation and regular

returns. The capital appreciation occurs when an investment is sold out at a higher

price as compared to the original purchase price of an investment. The regular

return from investment is derived in the form of interest or dividend. Before


making an investment the investors are considering different factors such as

financial, political, economical, market conditions and psychological environment.

Nowaday’s investors have before them the wide range of investment

opportunities such as equity shares, fixed returns securities, deposits, tax benefits

saving schemes, units of mutual funds, insurance schemes, gold and real estates.

Out of the various investment opportunities available, the investment on equity

shares is considered to be a more rewardable and more risk prone. However

many investors in India are coming forward to invest their hard earned money in

equity. In this context, the present study highlights the investors’ attitude towards

stock market in Madurai city. This study mainly focuses on the awareness of the

investors’ in respect of stock market and factors to be considered before investing

in the market. Besides it has also been has also analysed about the investors’

satisfaction regarding investment in stock market.

1.2 Statement of the Problem

An investor means a person who invests his savings. Investment is an

activity, which is different from savings. Savings are generated when a person

abstains from present consumption for a future use. Savings keep the cash idle and

do not earn anything. Hence the saver has to find a temporary repository for his

savings until they are required for his future. This results in investment. Increase

in investments is because of hike in working population, enhanced family

incomes and consequent savings, availability of large and attractive investment

alternatives and increase in investment related publicity. Investment has become a

household word and is very popular with the people at large.


Investment is a word of many interpretations. When a person has advanced

some money to others, he may consider his loan as an investment. He expects to

get back the principal along with interest at a future date. Another person may

have purchased a land for the purpose of value appreciation and may consider it is

an investment. The investors consider their investment needs, goals, objectives

and constraints in making investment decisions; it is not possible to make a

successful investment decision at all times. In the past, the equity investment was

considered to be a risky investment and hence only rich and business class people

had entered in the stock market transactions. But to-day, the equity investment has

become a household word and even middle class people also actively involved in

equity investment operations with the results that the total investments on equity in

various companies in India had increased tremendously. The investment made

with the help of rumours and tips may erode off the amount invested. As there is a

general attitude prevailing that making out of the stock market is easy, many enter

the stock market without prior knowledge and get their fingers burnt.

In Indian stock market, the majority of the investors are investing their

money in shares based on their own assumptions and others’ decision. In buying a

share number of factors are to be considered like the standing of the company,

political and economical environments, condition of the financial, market and

psychological factors. These considerations help to purchase the shares with least

cost and selling them at high price. It is better to invest after careful study and a

systematic evaluation in the form of fundamental and technical analysis.

Many investors neglect this evaluation due to inefficiency or lack of

knowledge of the importance of such an analysis. As a result they enter the market


without adopting any systematic approach. Therefore they are not able to predict

the future movements and they lose more when the market turns bearish. Even

though the Government of India has established many supervisory bodies to take

over the various operations of the stock market, it has not yet attained stability.

The irrational investors enter the market and buy the shares as per their own wish

and pleasure. They do not mind whether it is worthy to invest or not in the

particular company’s share. As a result the market loses its stability, when a large

number of irrational investors play in the stock market. Ultimately when the stock

markets lose the stability, the flow of funds in to capital market slows down and

affects the economic growth of the country.

A behavioural finance expert has stated that investors’ financial decision

making is not always driven by just mental considerations. The investors have

revealed more human traits in investment decision making such as fear, risk

seeking and aversion, peer group pressures and pleasure rather than going in a

systematic manner. Psychological and behavioural factors play a vital role in

investment decision rather than fundamental analysis of facts and figures. It is a

well known fact that the ability of human beings to make complex decisions is

limited and emotionally and psychologically biased. The attitude of investors is

examined from their risk bearing capacity. A number of implications of this issue

have been expressed by retail investors in the selected area of Madurai city, which

have been explicitly studied with respect to awareness about the stock market in

different dimensions, factors influencing investment decisions and level of

satisfaction towards stock market investment. These are all in respect of measuring

the investors’ attitude in the study area. The major objective of the study is to


discover the attitude of investors in their stock market investment and explore their

expectations as to make such investors achieve their investment objectives. This

study would help many investors who may want to know a rational method to buy

shares that have a better, risk position, role of SEBI, investors’ rights and portfolio

information along with their broad category of statement. Hence the study is

entitled as “Investors’ Attitude towards Stock Market: A Study with Reference to

Madurai City”.

1.3 Objectives of the Study

The following are the objectives of the study

1. To trace the theoretical frame work of the stock market investments.

2. To develop the conceptual model of satisfaction of towards stock


3. To examine the socio-economic profile and assess the level of

awareness of the sample respondents about the stock market in Madurai


4. To identify the factors influencing investment decisions in stock market.

5. To evaluate the level of satisfaction of the investors in the stock market


6. To summarize the findings and offer suitable suggestions to the

individual investors to make a good return on their investment in the

stock market.


1.4 Hypotheses

The following null hypotheses were framed and they were tested with the

help of statistical tools mentioned at the end of this chapter.

™ There is no significant difference in the level of awareness and perception

of factors influencing investment decisions among the group of

respondents on the basis of personal profile such as gender, age,

educational qualification, occupation, marital status, type of family,

monthly income and annual investment.

1.5 Scope of the Study

The present study is devoted to analyse the attitude of stock market

investors in Madurai city. For the purpose of the study, the investors belonging to

Madurai city only were selected. The study had been approached from the stand

point of investors who had interest in buying equity shares only. It does not

include any other individual and institutions which are directly associated with

stock market investment.

The study will be helpful for better understanding about the stock market

investment and help make good decisions in the market. It could be used by the

various factors that are to be considered to reduce their market risk, beside to earn

a fair return. The market predictions probably change many times, so that the

return cannot be measured accurately. This study will also help the stock brokers,

executives and financial experts. It is providing more number of tips with regard to

investments in the stocks used to be traded in the market. This study helps to find

answers for questions relating to investment strategies, views on different


investment portfolios and minute details considered by the respondents before

going in the stock selection in the stock market. This study may help the

individual investor and will be highly beneficial, giving valuable information at

the time of investment in the stock market.

1.6 Review of Literature

The research dimension of the related literature and the relevant

information begins from an explanatory perspective, approaching towards specific

studies which are related to judging the imitations and informational gaps in data

from the secondary sources. This analysis may reveal conclusions from past

studies to realise the reliability of the secondary sources and their creditability.

This in turn enables one to rely on a comprehensive review for the study.

A few studies had been made which were indirectly helpful to this

investigation. Reviews of such studies are presented below:

Marshall E. Blume and Irwin Friend2, in their article had concluded that

investors’ perceptions of their rate of return were not strongly related to any socio-

economic demographic characteristics except for age and income. The amount of

diversification was positively related to educational level and age even after

holding the income constant. Age was a lesser factor than education.

Thomas A Durkin and Gregory F. Elliehausen3 had found the stage in life

cycle to have less influence on holdings, than income. The survey further

confirmed that ownership of every type of assets by age, stage in life cycle

2 Marshall E. Blume and Irwin Friend, “The Changing Role of Individual Investors”, New York:
John Wiley & Sons, 1978, pp.12-16
3 Thomas A Durkin, Gregory F. Elliehausen, “Survey of consumer Finance 1983”, Federal
Reserve Bulletin 70, September, 1984, pp. 679-692


education; occupation, housing status and racial and ethnic group were to follow

the patterns related to income.

Preethi Singh4 had disclosed the basic rules for selecting the company to

invest in. she had viewed that understanding and measuring return and risk is

fundamental to the investment process. According to her, most investors were

‘risk averse’. To have a higher return, the investor had to face greater risks. She

had concluded that every investor should have an understanding of the various

pitfalls of investments. Investors should carefully analyse the financial statements

with special reference to solvency, profitability, EPS, and efficiency of the


Richard B. Roxs5, had defined risk as the chance that the investor will not

achieve the terminal amount necessary at the time required. Risk, according to him

is really not a question of objectivity for most people and it is an emotional


David. L. Scott and William Edward6 reviewed the important risks of

owning common stocks and the ways to minimise these risks. They commented

that the severity of financial risk depends on how heavily a business relies on debt.

Financial risk is relatively easy to minimise if an investor sticks to the common

stocks of companies that employ small amounts of debt. They suggested that a

relatively easy way to ensure some degree of liquidity is to restrict investment in

4 Preethi Singh, “Investment Management”, Himalaya Publishing House, Bombay, Nagpur,
Delhi, 1986
5 Richard B. Roxs “Marketing to the Individual Investors in Darwin”, M.Baytoned.1988,
6 David, L. Scott and William Edward, “Understanding and Managing Investment risk and
return, MC Graw Hill Book Co. (U.K.) Ltd., 1990, London


stocks having a history of adequate trading volume. Investors concerned about

business risk can reduce it by selecting common stocks of firms that are

diversified in several unrelated industries.

Nabhi Kumar Jain7 had specified certain tips for buying shares for holding

and for selling shares. He had advised the investors to buy shares of a growing

company of a growing industry, buy shares by diversifying in a number of growth

companies operating in different but equally fast growing sectors of the company.

He had suggested selling the shares; the moment company had or almost reached

the peak of its growth. Also, he had suggested selling the shares the moment one

realised that he had made a mistake in the initial selection of the shares. The only

option to decide when to buy and sell high priced shares was to identify the

individual merits or demerits of each of the shares in the portfolio and arrive at a


Peter Lynch8 had stated that the price-earnings ratio is often a useful

measure of whether any stock is over the period, fairly priced or under priced

relating to a company’s money making potential.

Prasanna Chandra9, had stated that the price earnings ratio was a summary

that primarily reflect growth prospectus, risk characteristics, share holder

orientation, corporate image and degree of liquidity. The popular consideration of

the price earnings multiple was because it provided a convenient measure for

inter-firm and inter-industry and inter-market comparison.

7 Nabhi Kumar Jain, “How to Earn More from Shares”, Nabhi publications, Delhi, 1994
8 Peter Lynch, The former fund Manager Magellan fund, Charted Financial Analyst, September,
9 Prasanna Chandra, IIM, Bangalore, Chartered financial analyst, September, 1994


Vinayakam and Charumathi10 in their study observed that equity cult had

spread to different parts of the country and millions of Indian investors invested

their savings in the booming stock markets. What was once considered as the

exclusive game of the rich and privileged class is now becoming a matter of day

interest for millions of middle and low income groups of investing public in India.

In spite of such widespread interest of Indian investors in shares, investment

knowledge is very much lacking in them. This is evident from the fact that most

of them usually get attracted towards the stock exchanges like moths to a candle in

periods of boom and rising prices in a bid to become rich quickly. When the

boom bursts and a depression sets in, most of such new entrants prove a menace to

themselves and to the general public ultimately.

Elke U. Weber Richard A. Milliman11, had stated that commuters changed

their preferences for trains with risky arrival times when the alternative involved

gains with changes in the perception of the riskiness of the choice of alternatives.

This had left the perceived risk attitudes of majority of commuters unchanged.

Similarly, they had investigated changes in risk perception, information

acquisition and stock selection as a function of outcome viz., returns. Investors’

stock selection and their perception of the risk of the same stock were different in

series of decisions in which they lost money than in series in which they made


10 Vinayakam, N. and Charumathi, B, “Globalisation of Emerging Equity Markets”. Finance
India, Vol: IX No.3. September 1995. pp.655-666
11 Elke U. Weber Richard A. Milliman, “Perceived Attitudes: Relating Risk Perception to Risky
Choice”, Management Science (online), Vol. 43, No. 2, February, 1997, pp. 123-144


Lewellen et al12, had found investor’s age, income level and gender

essentially in that descending order of importance to be the characteristics which

overrode characteristics viz., occupation, marital status, family size and

educational background as significant influences in the explanation of differences

in investment style and strategy. The last four were found to make modest

contribution to investment decisions.

Tomy Varghese13 conducted a study on individual investors in the capital

market in Kerala. He had stated that brokers were not well informed. His survey

revealed that, 53 per cent of investors felt that brokers were not honest and about

83 per cent had experienced delay in payments. However, the majority of the

investors (74 per cent) considered that brokers are helpful.

Santi Swarup K14 had indicated that the investors gave importance to their

own analysis as compared to brokers’ advice. They also considered market price

as a better indicator than analyst’s recommendations. The study also identified

factors that were affecting primary market situation in India. Issue price,

information availability, market price after listing and liquidity had emerged as

importance factors in the study. The study suggested that investors need to be

assured of some return and the level of risk associated with investment in the

market was very high. They have bad experience in terms of lower market price

after listing and high issue price. A number of measures in terms of regulatory

12 Welbrr G. Lewellen, R.C. Lease and G.G. Schlarbaum, 1997.op.cit
13 Tomy Varghese, “A study of individual investors in the capital marker in Kerala”,
Unpublished Ph.D Thesis, Cochin University of Science and Technology, Kochi, March,
14 Santi Swarup, K., “Measures for Improving Common Investors’ Confidence in Indian Primary
Market a Survey”, (online), National Stock Exchange India Limited, 2003.


price level and market oriented reforms were suggested to improve the investor

confidence in equity primary markets. However, this study did not highlight the

measures for improving investors’ confidence in the secondary market.

Ravichandran, K.S, and others15 had stated that traditionally, technical

analysis approach, that predicted stock market prices and volume, basic concepts

of trends, price concepts trends, price patterns and oscillators, were commonly

used by investors to aid investment decisions. In recent year most of the studies

had considered the future predictions in the stock market through Neural


Natalie Y. Oh, Jerry T. Parwada and Terry S. Walter16 investigate the

trading behaviour and performance of online equity investors in comparison to

non-online equity investors in Korea. While online trading has become more

prevalent in financial markets, the role of online investors and their impact on

prices has attracted little empirical scrutiny. They study the trading activity of

foreign investors, local institutions and individual traders between 2001 and 2005

and compare their performance based on whether or not trading is performed

online. Their main finding is that in aggregate, online investors perform poorly in

comparison to non-online investors. Between investor-types, foreigners show the

best returns, followed by local institutions. Individual investors provide liquidity

to other investor-types, particularly when trading online. On balance, the main

15 Ravichandran, K.S., and others, “Estimation of Return on Investment in Share market Through
ANN”, Journal of Theoretical and Applied information and Technology, 2005, pp. 44-53
16 Natalie Y. Oh, Jerry T. Parwada, Terry S. Walter, Investors' trading behavior and
Performance: Online versus non-online equity trading in Korea, Pacific-Basin Finance
Journal, Volume: 16, Issues: 1- 2, January, 2008, pp.26-43.


implication of their findings is that the disadvantage suffered by individual

investors is mainly explained by their online trades.

Mahabaleswara Bhatta H. S17 had felt that empirical studies had time and

again proved that irrational behaviours have caused stock market bubbles and

crashes. The knowledge developed through the studies would provide a frame

work of behavioural principles within which the investors would react. The paper

suggested for a time bound program to educate and counsel the individual

investors about the wisdom required in stock trading and be aware of unethical

and tactical practise of brokers, shady dealing of the companies and the insider


Tabassum Sultana Syed18, studied the characteristics of the Indian

individual investors i.e., risk tolerance level and independent variables such as

age, gender on the basis of a survey. Some of the investors had high income, well-

educated, high salaries and independent in making investment decisions and some

conservative investors, had conveyed that irrespective of gender, most of them

were found to have a low risk tolerance level and many others had a high tolerance

level rather than moderate risk tolerance risk.

Singh Sandhu and Kundu19 had indicated that attitude dimensions and

demographic variables contributed significantly in classifying investors as

adopters or non-adopters in internet trading. As regards attitude dimensions,

17 Mahabaleswara Bhatta H.S “Behavioural Finance – A Discussion on Individual investor’s
biases”, The Management Accountant, ICWAI Journal, Vol. 44, No 2, February, 2009,
pp. 138-141
18 Tabassum Sultana Syed, “ An Empirical Study of Indian Individual Investors”, Behaviour
Global, Journal of Finance and Management, Vol.2, No.2, 2010, pp.19-33
19 Singh Sandhu and Kundu, JIBL, Vol.15, No.1, April, 2010, pp. 1-19


‘variety of financial products and safety’ contributed significantly in

discriminating between adopters and non-adopters followed by the factor such as

convenience and transparency. As far as the demographics were concerned, the

mature/older, experienced and business men investors were less likely to use

internet stock trading as compared to young, inexperienced and non-business


Manoj Kumar Dashl20 Factors Influencing Investment Decision of

Generations in India: An Econometric Study This study aims to gain knowledge

about key factors that influence investment behavior and ways these factors impact

investment risk tolerance and decision making process among men and women

and among different age groups. The individuals may be equal in all aspects, may

even be living next door, but their financial planning needs are very different. It is

by using different age groups along with Gender that synergism between investors

can be generated. In this context, demographics alone no longer suffice as the

basis of segmentation of individual investors. Hence keeping this in mind, the

present study is an attempt to find out Factors which affects individual investment

decision and Differences in the perception of Investors in the decision of investing

on basis of Age and on the basis of Gender. The study concludes that investors’

age and gender predominantly decides the risk taking capacity of investors.

Annal Lourdhu Regina21, had pointed out that the blue-chip shares were

followed by the growth shares. The buying decision of the investor may be on the

20 Manoj Kumar Dashl, “Factors Influencing Investment Decision of Generations in India”
International Journal of Business Management Economics Reviews, Vol 1(1), 2010, pp.15-26
21 Annal Lourdhu Regina, “A Study on the Individual Investor Behaviour in Capital Market with
Special reference to Tamilnadu”, Unpublished Thesis, Bharathidasan University, June, 2010


basis of fundamental or technical analysis or it may be triggered by a very positive

earnings announcement. Some forty per cent of the respondents had unfavourable

perceptions about Indian stock market, the level of investor’s awareness varied

significantly among respondents belonging to different age groups.

James E. Corter22 had concluded that risk tolerance and uncertainty

tolerance can be distinguished not only theoretically but empirically and that both

types of attitudes affected investing behaviour. While higher levels of risk

tolerance led to riskier portfolios and thus to higher exposure to losses, it seemed

that investors’ emotional reactions to losses were not mitigated by higher level of

risk tolerance. It suggested that a high level of risk tolerance insulated a client

from neither the actual nor the emotional consequence of market losses.

Sohan Patidar23, found that as per the age-wise classification, the investors

in the age group of below 35 years were actively participating in the speculation

trade and the age group of above 55 hesitated to take risks. Professional people

were not interested in the share market and investors falling under the income

group below Rs 20, 000 showed more interest in investing their earnings in the

share market.

Maruthu Pandian P and Benjamin Christopher24 had stated that there was a

difference in the revival of awareness among the investors. It was found that the

22 James E. Corter, “Investor Attitude towards Risk and Uncertainty and Reactions to Market
Turmoil”, Behavioural Finance Working Group Conference: Fairness, Trust and Emotions in
Finance, July 1-2, 2010, pp. 1-12
23 Sohan Patidar, “Investor’s Behaviour towards Share market”, International Research Journal,
Vol 1 Issue 13, October 2010, pp. 55-57
24 Maruthu Pandian and Benjamin Christopher, “A Study on Equity Investor Awareness”,
Unpublished Doctoral Dissertation at Bharathiar University, 2010


awareness index was high among young male investors, post-graduates and

meticulous business men.

Selvam V25 had concluded that internet trading had gained momentum, as

result of trading volume growing by 150 per cent per annum. The NSE had 108

registered brokers, 10.54 crore internet trading subscribers with five major

companies’ controlling 90 per cent of the market share in internet trading.

E. Bennet et al26, found the average value of the five factors namely, return

on equity, quality of management, return on investment, price to earnings ratio and

various ratio of the company had influenced the decision makers. Further other

five factors such as recommendation by analysts, broker and research report,

recommended by friend, family and peer, geographical location of the company

and social responsibility were given the lowest priority or which had low influence

on the stock selection decision by the retail investors.

Arifur Rehman Shaikh and Anil B Kalkundarikar27 had revealed that

knowledge level significantly leveraged the returns on the investments and there

was a negative correlation between the occupation of retail investor and the level

of risk.

25 Selvam V, “Investors Perception about Internet Stock Trading – A Constraint Analysis”,
International Journal of Research in Commerce and Management, Vol: 1, Issue No 8,
December, 2010, pp. 71-75.
26 E. Bennet and Others, “Investors’ Attitude on Stock Selection Decision”, International Journal
of Management and Business studies (online), Vol 1, Issue 2, June, 2011, pp. 7-15
27 Arifur Rehman Shaikh and Anil B Kalkundarikar, “Analysis of Retail Investor’s Behaviour in
Belgaum District, Karnataka state, International Journal for Management Research, Vol 1,
No.2, July, 2011, pp. 22-39


Palaneeswari T and Kaleeswari J28 had analysed the factors influencing

investment in capital market in which risk factors had the highest loading and

awareness factor had the lowest loading.

Srinivasa and Rasure29, had pointed out that there seemed to be a certain

degree of correlation between the factors that behavioural finance theory and

previous empirical evidence were identified as the influencing factors for the

average equity investor, and the individual behaviour of the active investors in the

Indian stock market was influenced by the overall trends prevailing at the time of

the survey in the BSE.

Mart Grinblatt and Matti Keloharju30 had analysed that the difference in

investor behaviour was consistent at regular intervals. The portfolios of foreign

investors outperformed the portfolios of households, even after controlling the

behaviour difference.

Rajeev Jain31, had examined three important attitudes displayed by the

investors such as expectations that those investors had about the future

28 Palaneeswari T and Kaleeswari J, “Investors’ Perception towards Capital Market-An empirical
Study with reference to Sivakasi, Tamilnadu”, Indian Journal of Finance, November,2011,
pp. 34-38
29 Srinivasa and Rasure, “Factors Influences and Individual Investor Behaviour: The Study of
Indian Stock market”, International Journal of Research In Commerce, Economics and
Management, Vol, No 1Issue No 7, November, 2011 pp. 79-83
30 Mart Grinblatt and Matti Keloharju, “The Investment Behaviour and Performance of Various
Investor Types: Study of Finland’s Unique Data Set”, Journal of Financial Economics, Vol.55,
2011, pp. 43-67
31 Rajeev Jain, “Investor Attitude Towards Secondary Market Equity Investments and Influence
of Behavioural Finance”, International Journal on Emerging Technologies, Vol 3 (2), 2012,
pp. 67-69


performance of the stock market in India, secondly confidence that investors had

regarding their investments and finally the herd instincts that indicate investors

tend to herd together. It is a fact that only few investors created immense wealth

from a stock market and also managed to keep it for decades, Investors take the

right decisions and for taking right decisions they needed experience.

Dhiraj Jains and Nakul Dashora32 had identified that the decision factors

such as market expectations, dividend and bonus announcements, and the impact

of age, income levels and other market related information were influenced by

market movements.

Warne, D.P., Suman33, had stated that the market movements affected the

investment pattern of investors in the stock market.

Wahida Farzana and others34, in their findings showed that though

individual investors made investments in security market as an alternative source

of income along with their fixed income; they tend to take risks by investing large

amounts of capital. The reasons for taking high risks on investments were steady

return on capital, knowledge of capital market situation through trading program

arranged by Securities and Exchange Commission. Moreover, investors

maintained their own portfolio. It was the responsibility of the brokers who do

not provide them with a contract note after trading.

32 Dhiraj Jains and Nakul Dashora, “A Study on the Impact of Market Movement on Investment
Decision: An Empirical Analysis with Respect to Investors in Udaipur, Rajasthan”, Journal of
Arts and Commerce, Vol. III, Issue 2(2), April, 2012 pp. 78-88
33 Warne D.P., Suman, “Investment Behavior of Individual Investor In Stock Market”,
International Journal of Research in Finance and Marketing, Issue 2, 2012, pp. 243-249
34 Wahida Farzana and others, “Behavioural Financing: Demographic Factors and Services of
Brokerage House in Bangladesh, World Journal of Social Science, Vol 2, No 4, July, 2012,
pp. 15-33


E. Bennet and et al35 had analysed the factors influencing investors’

expectation of stock price rising for next twelve months are the low rate of

inflation, interest rate, unemployment rate and price of fuel. The investor optimism

or nothing can go wrong attitude was reflected in the belief that there was no

alternative investment option other than the stock market. Investors desired to

invest in stock market for getting high rate of return and capital appreciation

whereas post office, government bonds, bank deposit and other instruments

yielded low rate of returns. Therefore, investor’s preference lay in investing in the

stock market.

Manjunatha T and Gopi K. T36, found that every investor had his own

investment objectives, risk acceptance level, inflows and outflows of money and

other constraints. Their study showed that the decision of retail investors in

primary market were influenced by issue price, information availability, broker

advice, recommendations of the analysts, secondary market situation, disclosure

by market participation and other factor. The study suggested that wealth

maximisation criteria was important to retail investors while investing in the

primary market, the recommendation of brokerage house analysts, issue price,

IPOs grading, promoters’ reputations and other factors go largely were considered

in the primary market.

35 E. Bennet and others, “The Impact of Investors’ Sentiment on the Equity Market: Evidence
from Indian Stock Market, African Journal of Business and Management, Vol 6(32), August,
2012, pp. 9317-9325.
36 Manjunatha T and Gopi K. T, “Factors Influencing Retail Investors in Indian Primary
Market”, International Journal of Research in Commerce in Management (online), Vol 4,
Issue 2, February, 2013, pp. 81-86


Arun Lawrence and Zajo Joseph37, had pointed out that ‘non execution of

order’ on time and availability of statement of account from brokers were the

main reasons for dissatisfaction and it constituted equal part of the population to

the extent of 43 per cent of population. Not getting information regarding

transactions on time was the problem quoted by 14 per cent as the reason for

dissatisfaction. They had suggested that the brokers should try to execute the

orders on time and provide account details of investors frequently.

Tomola Marshal Obamuyi38, in his study found that the socio economic

characteristics of investors statistically and significantly influenced the investment

decisions of investors in Nigeria. The study recommended that the investment

climate and the market environment be made friendly and conducive to attract

investors by creatively developing programmes and policies that impact on

investor decision in order to maximise the value of the firms and enhance the

wealth of the investors.

Claessens39 in his study on equity investment in developing countries points

out that the benefits available to an investor of equity investment in emerging

markets ultimately depend on a trade-off between the expected rate of return and

its associated risk. To assess this trade-off a number of factors are important: the

underlying factors driving the rate of return and its variability; the efficiency of the

domestic stock market; the regulatory, accounting and enforcement standards in

37 Arun Lawrence and Zajo Joseph, “Investors Perception of Stock Market: An Empirical
Study”, Southern Economist, Vol. 51, No. 19, February, 2013, pp. 5-8
38 Tomola Marshal Obamuyi, “Factors influencing investment decision in capital market: A
Study of Individual investors in Nigeria”, Organisations and markets in emerging economics,
2013, Vol.4, No.1 (7), pp. 141-161.
39Claessens, Stijin “The Emergence of Equity Investment in Developing Countries: Overview”,
The World Bank Economic Review, Vol: 9, No.1, pp. 1-17.


the host country etc. The risk-return trade-off should, however, be investigated

from the point of view of an internationally well diversified investor who is

considering investing in emerging markets.

Feldman and Kumar40 in their article examine the main characteristics of

emerging stock markets. They point out that the regulatory environment is

particularly important for countries eager to integrate their market with the

international financial system. Without effective regulation and enforcement,

domestic and international investors will be reluctant to commit resources to these

markets. Regulation to effect governmental control should be restricted to those

strictly necessary for correcting market failures proves to occur in unregulated


1.7 Methodology

The study was based on the both primary and secondary data which were

collected through various sources. The primary data were collected through

questionnaire from the 500 sample investors of stock market at Madurai city

belonging to varied profiles of different age groups, varied income level, different

educational qualifications and nature of employment. The secondary data were

collected from journals, books, websites and magazines. Apart from this for the

collection of data various libraries, broking houses at Madurai city were visited.

The experts in the field were contacted and fruitful discussions followed by

purposeful guidance from them were obtained.

40 Feldman Robert, A and Kumar Manmohan, S. “Emerging Equity Markets: Growth, Benefits
and Policy Concerns” The World Bank Research Observer, Vol: 10. No.2, pp. 181-200.


1.8 Framework of Analysis

The collected primary data were properly edited, coded and classified.

Based on this, a master table was developed and thereby a number of small tables

were drawn for the purpose of analysis. Different types of statistical tools such as

percentage analysis, weighted scoring technique were used in appropriate places to

derive inferences and conclusion for the study. To assess the attitude of investors

towards fourteen different dimensions, a five-point Likert scaling technique was

used to find the scores. To find out the significant differences that existed between

two or more variables, to assess the level of awareness about the stock market, to

identify the factors influencing investment decisions towards stock market and

other personal factors the One Way ANOVA test was applied.

The descriptive statistics method was used to calculate the mean scores,

standard deviation and co-efficient of variation to find out the overall view and

attitude of the sample investors. In order to find out the relationship between the

level of satisfaction, level of awareness and also factors influencing investment

decisions, the correlation and multiple regression tests were applied. Because the

sample size was 500, the assumption of normality had been met. So the parametric

test has been applied.

In order to test the significant difference between the opinion of the

respondents based on their personal profiles and the level of awareness and also

factors influencing investment decision, the One Way ANOVA test and

Independent sample t-test were applied. The statistical calculation for mean,

standard deviation, co-efficient of variation, correlation, multiple regression, One


Way ANOVA test and independent sample t-test were derived by using SPSS

packages and results were shown chapter- wise in specific tables and inferences.

In order to analyse the attitude of the respondents towards the level of

awareness about the stock market they were asked to respond to 20 statements

using Likert’s five point scale starting from “Fully Aware” (5) to “Fully Not

Aware” (1). These 20 statements were grouped in to four dimensions each of them

consisting of five statements:

i. Risk

ii. Rights of a shareholder

iii. Derivative market

iv. Role of SEBI in the stock market

In order to analyses the attitude of the respondents towards factors

influencing investment decision in the stock market they were asked to respond to

42 statements and they were analysed by using Likert’s five point scale starting

from “Strongly Agree” (5) to “Strongly Dis Agree” (1). These 42 statements were

grouped into six dimensions with each of them consisting seven statements:

i. General

ii. Company

iii. Political and economic

iv. Financial

v. Market

vi. Psychological

To test the attitude of the respondents in respect of relationship between the

level of satisfaction in the stock market, the level of awareness and factors


influencing investment decision variables in the stock market, the sample investors

were asked to respond to 28 statements. They were analysed by using Likert’s five

point scale starting from “Fully Satisfied” (5) to “Fully Not Satisfied” (1). These

28 statements were grouped in to four dimensions with each of them consisting of

seven statements:

i. Stock broker

ii. Depository

iii. SEBI rules and Regulations

iv. Market condition

The perception scores were classified into three groups:

1. High Perception: Scores above (Arithmetic Mean + Standard Deviation)

2. Medium perception: Score ranging from (Arithmetic Mean – Standard

Deviation) to (Arithmetic Mean + Standard Deviation) and

3. Low perception: Scores less than (Arithmetic Mean – Standard Deviation).

1.9 Period of the Study

For collection of secondary data the last ten years from 2003-04 to 2012-13

were taken as the reference period. The required primary data were collected from

investors through interview schedule during the year 2012-13.

1.10 Sampling Design and Pre-Test

For an in-depth investigation, 500 sample investors were chosen for this

study in Madurai city. The sample investors were chosen by adopting the

following procedure. There were ninety six stock brokers and the average weekly

trading of each house was nearly about forty investors and the total population


worked out to 3840. By applying multistage proportionate random sampling

technique, 500 as sample respondents were selected. For getting the results

different stages were followed. In the first stage, all the 96 stock brokers in

Madurai city were taken as universe. Secondly, out of 96 stock brokers, fifty per

cent of total stock brokers i.e. fifty were chosen for the study. At the third stages,

out of 40 average investors 25 per cent of the investors were chosen broker-wise,

i.e. 10 investors from each 50 houses and it was worked out to 500 respondents.

Accordingly, the primary data were collected from 500 sample investors by taking

10 each from 50 stock brokers through a well structural questionnaire. To test the

validity of the sample size, Cochran’s simple size formula was applied.

(t) * (p) (q)

N = ----------------

(1.96)2 * (0.5) (0.5)

N = ------------------------- = 384

Where t = value for selected alpha level of 0.025 in each tail = 1.96

(The alpha level of 0.05 indicates the level of risk the researcher is willing to take
that true margin of error may exceed the acceptable margin of error)
Where p and q = estimate of variance = 0.25
(Maximum possible proportion (0.5)* 1 – maximum possible proportion (0.5)
produces maximum possible sample size)
Where d = Acceptable margin of error for proportion being estimated = 0.05
(Error, researcher is willing to except).

The above said population of the study was 3840 investors. The required

sample size was 384. However, since this sample size exceeded five per cent of


the population (3840 * 0.05 = 192), Cochran’s (1977) correction formula was used

to calculate the final sample size41. This calculation is as follows

n= -----------------------
(1+ n / population)

n= ------------------ = 349
(1 + 384/3840)

Where population size = 3840

Where N = required return sample size according to Cochran’s formula (384)

Where n = required return sample size because sample size > 5 per cent of the


Here n worked out to 349. In order to find out the final sample size, the

pilot study was conducted to find out the anticipated response rate and it was

found to be 65 per cent42. By substituting the data to over sampling procedures as


Minimum sample size (corrected)

n1 = ----------------------------------------
Response rate

n1 = ------------- = 537

41 Cochran, W. G, Sampling techniques (3rd ed.,), New York: John Wiley & Sons, 1977,
pp. 43-50
42 James E. Bartlett, “Organizational Research: Determining Appropriate Sample Size in
Survey Research”, Information Technology, Learning and Performance Journal, Vol. 19,
No.1, Spring 2001, p. 47


Finally, the sample size was fixed as 537. Out of 537, 37 respondents filled

the questionnaire incorrectly. Hence those questionnaires were considered as

incomplete questionnaires and only 500 respondents were considered for the


1.11 Limitations

In spite of its strength and uniqueness, the study is hedged with certain

limitation. They are

1. The study mainly based on the primary data collected form 500 sample

respondents in the Madurai city. The inherent drawbacks of the primary

data are applicable for this study.

2. The study covered only with the equity and equity derivative oriented

investments alone.

3. The hesitation of the respondents in disclosing their income and

investment particulars made the data collection very difficult.

Respondents did not want to reveal their investment details in absolute

terms and hence the questionnaire had to be modified to get the data

relating to the income level and investment level.

4. The findings were restricted to a small group of investors in Madurai city

and may not represent the entire population.

5. Many technical information and terms contained in the questionnaire, had

to be explained to the respondents to enable them to fill the questionnaire.

6. This study pertains to a specific period and place and may be applicable

to other periods and places if a similar condition exists.


1.12 Operational Definition Concepts

1.12.1 Blue chips

Shares of particularly well known and established companies that have

shown consistent growth over the years, which have bright future prospects and

are the expected to do well in the future.

1.12.2 Fundamental Analysis

Fundamental analysis of a business involves analysing its statements and

health, its management, competitive advantages, its competitors and markets.

1.12.3 Technical Analysis

In finance, technical analysis is undertaken through the study of past market

data, primarily price and volume as a security analysis discipline for forecasting

the future direction of prices.

1.12.4 Gross Domestic Product

The value of total final output of goods and services produced within a

country during a year.

1.12.5 Nifty Index

Share price index started by the National Stock Exchange in November

1996. It comprises 50 large and liquid stocks in the NSE.

1.12.6 Primary Market

These refer to the market for new issues. Once a new issue has been made,

it begins to be traded in the secondary market.

1.12.7 Secondary market

The market, in which existing shares are traded among investors bought or



1.12.8 Securities Exchange Board of India

Statutory Regulatory Authority for the capital market in India created by

the Government in 1992.

1.12.9 Listed Company

It means a company whose shares are tradable in a stock exchange. Such a

company has to fulfil a host of prescribed conditions intended to protect the

investors. Capital market regulations cover only the listed companies.

1.12.10 Sensex

It is a short form of Sensitive Index, based on share prices of 30 leading

companies in India. It was started by the BSE in 1978-79 and is the oldest index of


1.12.11 Broker

A member of the stock exchange, who is licensed to buy or sell shares on

his own or his clients’

1.12.12 Inflation

The annual percentage increase in the general price level

1.12.13 Settlement Cycle

Settlement cycle on the NSE/BSE is an account period for the securities

traded on the exchange.

1.12.14 Capital Gain

Rise in the value of an equity share over and above the purchase price.

1.12.15 Contract Note

Contract note is a confirmation of the trade done on a particular day for and

on behalf of a client.


1.12.16 Brokerage

The minimum brokerage chargeable as stipulated by SEBI is at present 2.5

Per cent of the trade value. This maximum brokerage is inclusive of sub-brokers

brokerage which shall not exceed 1.5 per cent of the total value.

1.12.17 Dematerialization

Securities in physical form are cancelled and credited in the form of

electronic balances which are maintained on a highly secure system at NSDL

1.12.18 Investors

One who buys or sells the securities in the stock market.

1.12.19 Short Delivery

Short delivery refers to situation where a client, who has sold certain shares

during a settlement cycle, fails to deliver the shares to the buyer either fully or


1.12.20 Bonus Share

When a company’s accumulated reserves are high, it may choose to issue

bonus shares to existing shareholders in proportion to their shareholding. Thus the

reserves get converted into share capital but the number of shareholders will

remain the same.

1.12.21 Liquidity

Quick access to cash is needed in order to make scheduled withdrawals

from the portfolio with reducing transaction costs.

1.12.22 Risk Tolerance

It refers to the risk taking ability of the investors which is assessed based on

the responses given by the investors relating to their investment strategy.


1.12.23 Investors Awareness

Financial literacy or investor awareness is the process by which investors

improve their upstanding of financial market products, concepts and risk.

1.12.24 Reliability

In statistics, Cronbach’s alpha is a coefficient of internal consistency. It is

commonly used as an estimate of the reliability of a psychometric test for a sample

of examinees.

1.12.25 Intraday

It refers to price movements of a given security over the course of one day

of trading. It is generally used to describe the high and low price of a stock or

option during a given trading day or session.

1.13 Chapter Scheme

The report of the study was organised and presented in seven chapters.

The first chapter forms the introduction and design of the study. This in

detail had sub divisions like introduction, statement of the problem, review of

literature, objective of the study, significance of the study, methodology, design of

the study, limitations, and chapter scheme.

The second chapter deals with the theoretical background of the stock

market investment elaborating the various theories related to investors behaviour

in the stock market.


The third chapter covers validation of the conceptual model using visuals

Path Linear Square. It deals with statistical validation of an empirical model that

explains the attitude of investors and it offers a predictive analysis of the data

resulting in a theoretical confirmation.

The fourth chapter describes the level of awareness about the stock market

along with socio economic profile of the respondents in the study area in which,

the hypothesis related to level of awareness and personal variables of the

respondents were analysed.

The fifth chapter contains the attitude of investors towards various factors

influencing their investment decision and also tested the hypothesis with regard to

personal variables and various factors influencing investment decision in the stock


The sixth chapter deals with the level of satisfaction towards stock market

investment in various dimensions and analysed between them the level of

awareness, level of satisfaction and the factors influencing investment decision.

The seventh chapter concludes with the summary of the study. The chapter

contains the major findings of the study and the suggestions for further research.